New Home Sales Highest Since April 2010... Until One Reads The Fine Print

On the surface, today's New Home Sales number was great (as always tends to happen just before a presidential election): a print of 389K seasonally adjusted annualized units sold in the US (ignoring the 37.3% collapse in the Midwest), which was a 5.7% increase from August's downward (unlike initial jobless claims, when one is attempting to report an increase, the last number is always revised downward) revised 368K (was 373K). This number was the highest adjusted print since April 2010, which makes for great headlines. So far so good, until one looks beneath the headline and finds that the 389K number (to be revised lower next month), is based on a September unadjusted number of 31K in actual sales, consistting of 3K sales in the Northeast and MidWest each, 16K in the South and 9K in the West. This is the unadjusted number, which as last week's BLS fiasco with Initial Claims showed, applying seasonal adjustments is the easiest and best way to manipulate any data set (for more see X-12 Arima's FAQ - all 257 pages of it). This was the lowest print since February's 30K, the same as August's 31K, and well below the 35K from May 2012.

But wait, there's more: when one looks at the stage of construction (analogues to Housing Starts and Permits where one just needs a piece of paper to fabricate buying interest, and can be cancelled days later with zero sunk costs), the 31K unadjusted number consisted of 10K Not Started, 10K Under Construction, and 11K homes actually completed. To summarize: the Census Bureau took the sale of 11K actual new completed homes and extrapolated an annualized, seasonally adjusted number of 389K, feeding the media a number that is the "highest since April 2010." Instead, one look at the NSA chart below and one can see that grinding along the bottom is the best one can actually say.

According to my friends in the mortgage departments of BofA, Wells and Chase, the true mortgage app approval rate is less than 10%. The real bottom line is that lenders don't really want to lend and the universe of truly qualified borrowers is small, and diminishing.

My wife is a realtor and I would say locally the number is much greater than that, but not fantastic. She has a bank she recommends that is excellent at getting peoples credit fixed up and then getting the qualified for 100% loans through the USDA RD program. Three years ago these loans didn't exist in my area due to the population requirements. Now, I'd say they make up a solid 80% of the sub $125k owner occupied home sales. I think she has sold five or six to buyers using USDA loans this year, the most expensive being a $160k home. It has caused a extreme rise in homes that were $30-40k less than 4 years ago, but that has also caused rents to rise rapidly behind it.

I know she has very few people who cannot get financing, even though sometimes it might take 90 days to get things worked out or get the score up 20 points. Our real estate market is strong with inventory at pretty much a low point, and off as much as 50% from 10 years ago. Nice move in ready homes sell in less than 30 days at prices I'd never consider paying. I'm continually amazed by the strength of our market and the steady 3-5% yoy rise in prices that have taken place for the last 5 years.

It isn't that bad of a lie, seriously, yes, still a lie but not that bad. even unadjusted sales of 31k is equal to a 372 annualized rate. The chart tells it all. Looks like we have flat lined at about 20-25k units/month or about 240-300k annualized, obviously they are giving more weight to the last few months. Really, i just eye ball the actuall TTM number and then the trailing 3 months actual number compared to prior year trailing three months number.

if this was the only economic metric i followed, i'd say housing has bottomed, with a slight improvement over prior years. of course as well all know inventory, actual and shadow, has put a ceiling on any further meaningful building growth, AND this market has been rigged by the gov, and it seems the positive effect of any further QE or stimulus is running out...so I expect another leg down eventually. But best case, we see the past 12 month trend continue...essentially a flatline. which considering the state of the world, might actually be cause for cheers!

In other news: "ADP is altering the formula used for counting how many U.S. jobs are created each month in order to better align with government data..." Any doubts that ADP report that will come out on Nov 1st will look great? It's getting scary.

At least the actual jobs number is sometimes higher than the seasonally adjusted number. The seasonal adjustment to housing seems to have always at least doubled the actual number.

Out of the 11k homes actually completed, how many were actually sold? 2000, 500?

I brought the actual fact of true homesales up to my mother's friend who works as a realtor. She claimed that over 300k homes were being sold every month and housing was on its way up again. When I told her that the numbers she uses at work are all adjusted fabrications, she looked at me with a devil's stare.

I pulled up an unadjusted sales chart and showed her that less than 20k homes were actually sold nationwide in the month she claimed over 300k were sold. I said this is actual data based on finalized contracts. Do you get paid commission on the application of a mortgage, or the closing paperwork from the title company? I did say I would be mad though since her sales should be based on adjusted numbers, if her office played by Wall Street rules. If she sold 5 houses in a month, based on housing statistics, she should get credit for 500.

Way to complicated. Call a realtor. Ask him/her how many home they sold in the past 30 days. Ask how many they sold in September and in August. Call a Banker. Ask him/her how many refinances they did in the past 30 days. How many in Sept and how many in Aug.

You will find that Volume is declining rapidly. Everyone who could qualify for a refinance has already done so. Employment is not accelerating. Pew Research reports that 21% of young adults 24-35 have moved back home with their parents. No new "family units" are being created.

So the option is for Bernake to print more money and try to deflate the dollar so we can payoff some of our debt with cheaper dollars OR pull the plug ...let bondholders take a major hit. It's going to stink to high heaven for 6-12 months but we'll come back. The longer we wait to pull the plug, the harder the cement is going to feel when we fall face first.